Here's how your credit score is determined — and how to build it starting this year

The better your score, the better your financial options will be for things like loans, mortgages and rentals. Some employers even run credit checks on candidates before hiring, which is allowed in Canada, even though that seems to me like a violation of privacy.

The scoop is that if your score is below 650, you’ll benefit from improving it (below 650 is considered not that great and above that it grows from good to excellent, with the top score being 900). So, roll up your sleeves and try these techniques. 

Even if you can’t pay debts off in full, don’t be late

You’ll need to make the minimum payment at the very least, and on time, every time. When you are consistent with payments, it establishes a responsible payment history, which is one of the largest factors (35 per cent) that goes into your credit score.

If you’ve had delinquent bills, paying them down can make you look more responsible to creditors even though the missed payments don’t get removed from your credit report.

Setting up your bills and payments to auto-pay can help avoid missed payments. Ensure you have a current mailing address on file with creditors in the rare event they need to mail you a bill.

Do everything in your power not to max out your credit

The second-largest factor (30 per cent) that goes into your credit score has to do with available credit. When you max out your credit, get really close to that limit or go over, it’s a red flag for creditors. The goal is to watch your balances carefully and to not use too much of what you have available. If you don’t know your limit, you can usually find it by clicking on the "details" of the credit product from within your online banking portal

You may still be dealing with the past

If in the past you had problems paying your bills on time, in full, not paying at all or maxing out, your credit history will be challenged. It’s important to know that credit history is the third-largest factor (15 per cent) in your score, but as you show a pattern of credit responsibility, you slowly create a stronger history. So stay the course as you manage your payments on credit cards, mortgages, car loans, student loans and more.

Be mindful about new credit applications

Though it’s good to have diversity in the types of credit you have, if you apply for too much credit at once, and go hog wild using it, creditors view that as irresponsible. Mindfully add products that you actually need and only when you need them, is my advice. And, of course, ensure you can actually pay for the debt before signing on the dotted line for that new car loan. Credit diversification and new credit applications are the two last factors (at 10 per cent each) that make up your score, and are smaller factors.

It’s up to you to report inaccurate information

That’s right! The credit bureaus are not going to check for errors. You are entitled to a free copy of your credit report each year and you should carefully read the report. You can order this report through Equifax or TransUnion.

Any errors you find could give future lenders the wrong impression about you, and they might also be a sign of identity theft. The government outlines a really good step-by-step credit report error correction process. Your credit report feeds into your credit score, which is why you want to stay on top of it.

The keys to improving your credit score over time are paying your debts on time, making full payments and not maxing out your available credit. Be consistent and celebrate every milestone.

This article was originally published in The Star. Lesley-Anne Scorgie is a Toronto-based personal finance columnist and a freelance contributing columnist for the Star.